9-9-9 Would Probably Double Your Taxes

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Herman Cain’s 9-9-9 is certainly attracting a lot of attention and has given him a huge boost in popularity and poll numbers.  Proponents of the plan claim it’s simplicity will end the need for complicated tax returns, stimulate the economy and still raise the revenue necessary for the fed.  Opponents of the plan claim it will put a much larger tax burden on the poor and middle class while at the same time giving the government yet another way to tax us via a national sales tax (who says it will remain at 9%).

Since I prepare tax returns for a living, I have a lot of raw data to test this scenario out myself.  Here is what I did:

1. Randomly selected tax returns ranging from Gross Income of $15,000 to $350,000.

2. Divided line 60 (Total Tax) on the 2010 1040 by line 22 (Total Income).   This gives their “actual” tax rate.

Here are the results rounded to nearest 100 (Gross Income, Tax, Rate):

Taxpayer #1: $18,300; $0; 0%*

Taxpayer #2: $35,600; $2,000; 5.6%

Taxpayer #3: $40,000; $3,400; 8.5%

Taxpayer #4: $41,200; $0; 0%**

Taxpayer #5: $61,900; $7,000; 11.3%

Taxpayer #6: $96,000; $4,300; 4.5%**

Taxpayer #7: $112,800; $6,300; 5.6%**

Taxpayer #8: $177,500; $20,100; 11.3%

Taxpayer #9: $244,000; $35,200; 14.4%

Taxpayer #10: $341,400; $63,200; 18.5%

A couple of things can be gleaned from this:  1)  High income earners pay MUCH more in tax, and 2) most lower to middle income earners will pay much more tax under 9-9-9 than they currently do.  Under 9-9-9 individuals will pay a 9% flat tax and a 9% national sales tax, or 18%.  Practically everyone that earns less than $300,000 will pay much more under 9-9-9.  Of course, the argument then is, “shouldn’t everyone be paying something?”  But, that isn’t the purpose of this analysis.

*This analysis doesn’t take the Earned Income Credit or Making Work Pay Credit into consideration as those items are considered “payments” on the tax return and are reported below line 60.  Thus, many lower income people actually have a negative tax rate.

**Many people who earn more pay less tax than those who earn less because of the number of exemptions, Child Tax Credits and Itemized Deductions.